MR. GREGORY: Thanks so much, appreciate it. Well good afternoon, Governor, thank you for allowing me in the state.

GOV. PAWLENTY: Just be out by sundown.

MR. GREGORY: You know I really wanted to go to see the Twins play the Yankees tonight, but I do have to get home to my young kids and a got a busy day tomorrow, but I want to see that new stadium, so congratulations on that. Thanks to Carol Evan as well for being our partner in this discussion and this event as well as the Humphrey Institute, as Betsy noted, and welcome all of you. This is a terrific opportunity for me and for the program as was noted, we want to go around the country to some key spots and talk to interesting political figures and be able to do it in front of an audience. You get a sense of me, and what the program’s about without having to tune in, but we still want you to tune in of course.

And we’re honored to have Governor Pawlenty who was on the program a few months back but who’s obviously a compelling figure not only in Minnesota but on the national stage. So Governor, I guess I should just start with that so we’re not beating around the bush on all of this. You do have a trip planned to New Hampshire, you’re writing a book, I’ve been on the radio saying today of course he’s running for president, he may not admit it as such, so when are you going to make this decision and what’s going to go into that process for you deciding when you’re going to burst on to the national scene?

GOV. PAWLENTY: Well, um, I’m gonna decide what I’m going to do after my term as governor, so that decision will be made about my future sometime early 2011, probably first quarter 2011, David, and definitely I’m doing all I can to help the candidates in 2010, I’ve got to pack up and run and travel as the Vice Chair of the RGA, but as to my future, whether it be in the private sector or public sector, I’m gonna decide that in early ’11.

MR. GREGORY: One of the things that I think is interesting right now is what’s going on in the Republican Party. How would you describe some of the cross-currents within your own party right now?

GOV. PAWLENTY: I’d say good, you know there’s a lot of attention paid in the media about the Tea Party and various machinations within the party but that’s creative energy. Just to take the Tea Party as one example, it’s new people, new ideas, new energy, passion you know it’s still a little disorganized and that’s fine because it leads to creativity, and so it’s a good thing. Every generation or so there’s a, kind of a new movement with new energy and new people. At one point Ronald Reagan and his followers were seen as the new insurgents and Gerald Ford had the establishment mantra and people were improperly and on an uninformed basis were saying Reagan, somehow, you know, unsuitable and turned out to be one of the greatest leaders the country has ever known.

MR. GREGORY: So where do you fit, right now in the landscape of the party? You’ve described yourself as a “Sam’s Club” Republican if the Tea Party is the face of the party at the moment in terms of where that energy is, where that creative energy is, where does a Tim Pawlenty fit in that mix?

GOV. PAWLENTY: Well if you look at the Tea Party, and have a chance to go to some of their events, and I know you’ve studied it or participated in it or at least observed it, these are mostly folks who are average Americans who want the country and the government to return to American common sense, and if you look at their profile in terms of their socioeconomic status, their outlook, their philosophy, many of them you’d find at Costco, K-Mart, Sam’s Club, Walmart, Target, and the like, and what I mean by that is these are folks who in most cases don’t have a lot of money, they’re not the country club Republicans they’re not the polo playing stereotype Republicans these are just hard-working, good Americans who are worried about the future of the country, and they want value, and they want government to be limited and for what government does do, they want value. So when we talk about Sam’s Club Republicans, what I really mean by that is there’s a bunch of people who don’t have any more money, so they’re looking to shop for value; they don’t want to pay more than they should and for what they do pay for they want to get good value.

MR. GREGORY: Do you think social issues are what animate politics anymore? Are the culture wars over, is it now really about the government wars?

GOV. PAWLENTY: Well I wouldn’t say that the social issues have somehow been thrown overboard, they’re still really important to lots of Americans, they have strongly held views on both sides of those issues but if you ask people right now what the most important issue to them, clearly it’s national security and even more so the economy and jobs, and so those other issues are still important but they’ve been overshadowed by the urgency and crisis nature of the economy and job situation.

MR. GREGORY: Let me, we’ll come back to politics in a few minutes but Law and Order is going off the air on NBC but I still want to rip something from the headlines just this afternoon the President had his press conference about the Gulf oil spill and the Associated Press story reads this way “On the defensive more than five weeks into the nation’s worst ever oil spill, President Obama insisted Thursday that his administration, not oil giant BP, was calling the shots in the still unsuccessful response,” and quoting the President here, “I take responsibility, it is my job to make sure everything is done to shut this down.” What kind of job has he done?

GOV. PAWLENTY: Well I think it’s premature to lay blame on any one person or any one entity just yet cause we don’t have the facts so clearly we need to hold this administration and BP accountable, but as we do that we need to make sure we have good information and good facts. What we do know is this: this crisis was a result of negligence or malfunction, this rig was approved on this administration’s watch, there’s gonna have to be a review of what was reviewed and why it was reviewed, there was decision making on the ground on the platform on the day of the crisis that may have contributed to the problem, and as to the clean-up operation, there’s lots of concern; why aren’t there more skimmers out there, why aren’t they working longer hours, why did they rely just on BP early on to tell us what the volume of the leak was, why didn’t we independently verify that using government sources, why weren’t booms replaced more frequently when they became saturated in re-leaked oil.

So there’s going to be a lot of those questions that may very well point back to this administration or the president he wants to say he’s in charge, that’s great I’m glad he’s assuming responsibility and accountability I wish he would have done it probably earlier but before we make any final conclusions about who goofed up and who didn’t do their job, let’s make sure we have the facts, but in the meantime let’s all make sure we do the most aggressive job possible to address it. And, for example, this top kill procedure that they’re doing right now that might work, David, we’ll know more maybe later tonight, why didn’t they do this two weeks ago? Why didn’t they do this three weeks ago? Was it impossible from an engineering standpoint? And if this really was the best option, why did it take thirty-some days to deploy it? And who made that decision and why wasn’t it made earlier? So, these are the kinds of things that I think will unfold and perhaps should have unfolded already.

MR. GREGORY: If you lay blame with regulators, government regulators with regard to oil companies, don’t Republicans in an eight year Republican administration that had a pretty close relationship with the oil industry have to take some share of the blame?

GOV. PAWLENTY: We first have to find out what went wrong, but hypothetically, if what went wrong was there was a review of the procedure relating to the use of the cement or the way that they developed this well, and that falls back on the regulators, then the answer to your question is of course. But we don’t know that that was the triggering event. Now, I had a situation here in Minneapolis where a bridge fell, and a bunch of people in the early days following that saying here is the cause, they were speculating, we didn’t know, people almost instantaneously declaring that they knew the reason and some many months later, of course, the National Transportation Safety Board said the cause of the bridge collapse was an original design flaw dating back to the 1960s, so we have to make sure we know the facts before me make a political or legal indictment.

MR. GREGORY: Well, you know what’s interesting Governor when you think about the financial collapse on Wall Street, when you think about BP and this oil spill, how do conservatives who believe in limited government, small government, square those views with the reality that in both of those cases, it appears that government didn’t do enough, there wasn’t enough government to protect people from private enterprise?

GOV. PAWLENTY: I think the way conservatives view that is that we need a limited and effective government, so you have to prioritize and focus what you do, and those things you do do you need to do well. So, here we are, 40-50 years into the advent of most of the offshore oil capacity in the United States on our offshore waters. Why wasn’t there a contingency plan in place that would involve a government-led intervention, a government-led technology, a government-led response in case a BP or somebody else was incapable, unwilling, under-resourced, couldn’t do it, refused to do it, did it too slowly, and there appears to have been no contingency planning around that at all. So this would be an example of one of the highest orders of government, priorities of government, is to protect our citizens, broadly defined, and it appears like they may have failed to even think about this scenario over the course of many decades.

MR. GREGORY: Where is that line, though? The Rand Paul, Tea Party candidate in Kentucky got in trouble talking about Civil Rights Act, a title of which he’s opposed to even though he’s made it clear he wouldn’t work to overturn the Civil Rights Act, that it’s settled law, but it’s a question of where the line is between if you believe in limited government and what government ought to be doing to protect people or intervene in the markets. To your mind, where is that line?

GOV. PAWLENTY: We do that everyday in government in Minnesota, we’ve gone through years of budget challenges here, so what we said is this- we’ll use priority-based budgeting. We’ll make a list from the most important to the least important, we’ll fund and protect, and maybe even increase the funding for those that are most important and other things are going to be cut, reduced, or eliminated. So in our case, for example, we said we’re going to maintain or increase funding for military, national guard, veteran support programs and their families, we’re going to maintain state funding for public safety programs at the state level first in order of government or high order of government, we’re going to maintain funding for K-12 schools, we may delay some of their payments but we’re going to maintain their funding overall, and on down the list.

But, you know, it’s better than getting cut, I mean in many other states around the country K-12 just got cut, so you know, if they’d rather have the outright cut we can do that too but the bottom line is you gotta prioritize. And so we said these things are more important than the other things, not all the stuff that government does is equally important, and from a conservative standpoint, you can pretty much make a list of what the top priorities are.

MR. GREGORY: Let me ask you about leadership, you brought up education, and there are a couple of issues in Minnesota, one of which is the fact that under your leadership the state did not apply to get those Race to the Top funds from the federal government. You’ve also elected not to take some folks who are covered by a variety of state programs have their healthcare provided and put them into an expanded pool of Medicaid. A lot of your critics say look, this is money that the federal government that would provide the state of Minnesota, why pass that up? Why leave that decision to a future governor, to your successor?

GOV. PAWLENTY: Well I’d have to distinguish between the two examples you brought up, David, in Race to the Top, the things that Race to the Top is asking for, more rigorous teacher development, more rigorous teacher recruitment, more rigorous teacher training, accountability for how they’re hired, supervision for when they need to either improve or be let go, and measurements around teacher performance being tied to student performance, those are all things I’ve been working on for many, many years, leaders across the country have been working on for many, many years, there’s a bipartisan consensus to do that, thankfully President Obama recognized that, Secretary Duncan recognized that and they bundled up many of those things and put them in a Race to the Top competition, but still let the states be in charge of how they design their program at the state level.

We did apply, we came in twentieth in round one, and then we learned that the Minnesota laws in that regard were not sufficiently robust and rigorous, we asked our legislature to change them, so we could better compete in round two, the legislature refused to do that, so we said we know what our score’s going to be, it’s not going to be sufficient for round two so we’re not applying not because we had some objection to the program necessarily, it’s because Minnesota’s legislature refused to compete, and they, in my view, bowed to the teacher unions and genuflected to the teacher unions and are more interested in hugging them than they are in reforming education in real effective ways in Minnesota.

On the Medicaid issue that you raised, we have a lot of problems with the so-called “Obama Care.” Minnesota does not, from my view, want to be one of the states that early enrolls in a portion of that because I think it’s a wrong direction for the country, the next governor will have a chance to exercise his or her judgment on that issue, but as for me, I don’t like Obama Care.

MR. GREGORY: Do you think it ought to be repealed?

GOV. PAWLENTY: I think it’s a bad law, I mean I’ve called it one of the most misguided pieces of legislation in the modern history of the country. I think it’s going to, going to fail largely; you have the federal government has on every entitlement program that it currently runs, social security, Medicare, Medicaid is on a pathway to insolvency, it reflects 1940s thinking in the sense that their one-size-fits-all standardized bureaucracies run out of Washington, DC in a world that’s starting to look more like an iPod or an iPad, and so adding one more entitlement program that as sure as we’re sitting here will be on the pathway to insolvency within fifteen years is not a solution.

MR. GREGORY: But unlike a Republican provision, which was prescription drugs, benefits under Medicare, this is a program that the CBO says is paid for and will bring down the deficit.

GOV. PAWLENTY: Well, let’s be clear what CBO says, CBO says if all of the assumptions that they put into the legislation turn out to be true, it will be deficit-neutral over a period of time. All of those assumptions will not be true, so first of all the premise under CBO analysis is flawed, that’s number one; number two, overall, they’re going to be spending more, not less, on healthcare over this ten year period and certainly over the next twenty year period when it fully kicks in. So, if one of the goals of the legislation is to contain or reduce healthcare spending in this country, this piece of legislation will be a failure. All they did is expand access, which is another worthy goal if done reasonably, to a broken system. They did nothing to contain costs in fact, by the CBO’s own estimate, on a net basis, costs are going up. The total spend on healthcare is going up, not down.

MR. GREGORY: You didn’t answer, though, whether as a future candidate or as just a Republican out in the world you would advocate repealing the heath care law.

GOV. PAWLENTY: I would

MR. GREGORY: You would

GOV. PAWLENTY: And replace it and reform it with something better. And again, people’s eyes glaze over when you talk about health care reform, but if you want to do real healthcare reform, do some things like this: Minnesota has the highest concentration of health savings accounts in the country, they’re not for everybody, but for the people they’re suitable for, they work and guess what, relative to market prices and conditions they save money. We also have a state employee program where we said to the state employees, basically you can go anywhere you want but if you choose to go somewhere really expensive, and outcomes not so good, you’re paying more, and if you go somewhere less expensive without outcomes better, you’ll pay less, guess where they go. 90% of our state employees go to lower cost places, the quality and outcomes of the care are as good, and we’ve had almost no medical inflation in the program for five years because people have some skin in the game financially, they’re given information about cost, they make good decisions, they help control the cost, they’re in charge of their healthcare, and it works.

And so again the future in all these programs, whether its healthcare, education or the like, needs to look more like an iPhone than like a 1940s industrial General Motors model where you have centralized decision making out of Washington, D.C., command and control structures, one size fits all systems run by public employee bureaucrats that you can’t see, touch, feel or influence in Washington, D.C. The world is going to look like an iPhone, in other words, we give you information about price and quality, we put it at your fingertips, we give you options with guardrails for consumer protections, you’re in charge or your decision making in a market force and if you need some financial assistance we’ll give it to ya as best we can afford it, but it’ll come in the form of a tax credit, or a tax incentive or voucher that’s individualized to you.

MR. GREGORY: I want to talk through some other issues in just a moment but I want to talk about the President a little bit. You, earlier this month, you made a speech and you warned about “the creeping tyranny of the government.” Really? The creeping tyranny of the government under Barack Obama? What do you mean?

GOV. PAWLENTY: Well what I mean is this; the more the government does the more it usurps the traditional space in the private economy. So if I took a dollar from you, David, and said, and this is what government does, I’m extracting a dollar from you in the form of taxes, I’m the government, I take it from you and then I take 20 or 30% for overhead because I’m going to manage, swirl around, do compliance checks, audits, bureaucracy and the like, and then I’m going to redeploy your dollar back into the economy at say 70 or 80 cents on the dollar based on a politicized agenda or a politicized set of priorities, that’s a model of decision making that’s not as efficient and it’s political. Plus it’s not growth. So what I mean by that is that you were going to spend your dollar anyhow.

Your dollar in your pocket was going to buy you dinner tonight, it was going to pay for your kids’ college, it might’ve bought a car, might’ve bought an iTunes, who knows, but your dollar was going to circulate in the economy. The notion that the federal government is going to take money from people like you or anybody here, bring that into government and send it back out and declare that to be economic growth is a flawed decision-making. It’s what economists call substitution or transference effects but worse yet, the most corrosive part of that is, if you take that to an extreme, and it happens in increments, you take away entrepreneurial spirit, you take away individual responsibility, you take away the need for people to be innovative and industrious, and if you look at the recent comparisons between Greece and Turkey in terms of the culture of their people as it relates to entrepreneurial activity, productivity, innovation, and efficiency, it’s remarkable.

Greece is a great example not just of a financial disaster but of a cultural disaster as it relates to the deployment of capital, entrepreneurial activity, ingenuity, industrialness and the like. Government has so nanny-stated the people of Greece, so usurped the private economy, so issued entitlement mentalities it has effected the culture to the degree that the tyranny is the suffocation of the human spirit, the suffocation of the entrepreneurial spirit, the suffocation of the private market all happening in increments. It is a form of tyranny, it’s not an overstatement to say that.

MR. GREGORY: And yet, a lot of that, what some people might call that revolution talk, which is, you know, popular among certain conservative activists like the Tea Partiers, what really animates them are the bailouts, for instance, of the banks, which of course were initiated by President Bush, a Republican. So does that tyranny extend to the Republican rule of the country?

GOV. PAWLENTY: If you look at the country, not just, its incomplete to be charitable to say all of these problems just unfolded in the last year and a half. I mean President Obama and his administration have to take responsibility for an exponential expansion in the debt and embrace of a governing philosophy that I think goes down the road that I just described…

MR. GREGORY: So let me stop you there…

GOV. PAWLENTY: But clearly, clearly the spending lines and the debt lines, the role of government intervening have basically been on the same slope for forty years.

MR. GREGORY: The economy now is growing; it’s on track to create on the order of 1.7 million jobs this year. If that happens, does the Obama Administration deserve credit for a turn around?

GOV. PAWLENTY: It over-- you can’t push this much money into the economy in the near term and not have it have some effect. But what I would suggest to you is its phony effect. I think you’re gonna see in 2011, 2012 if you don’t have the private economy pick up the slack of the phony inflation of the economy, over the next couple years, you’re going to trigger a whole set of ‘nother adverse events including potentially inflation; but, President Obama, if this economy recovers and stays recovered, will get due credit. But I will suggest to you, at least in the intermediate and long-term, that’s not what’s gonna happen.

MR. GREGORY: But if there is continued job growth on the pace that we’ve seen so far this year, do you think that’s a “phony turnaround”?

GOV. PAWLENTY: Well let’s say you have nice job growth over the next two years and then the country goes bankrupt, is that a nice turnaround? I mean, the Untied States Federal Government…

MR. GREGORY: But Governor, it’s disingenuous to say the country’s gonna go bankrupt. I mean first of all, unlike Greece, the United States can print its own currency, so the reality is that it is not exactly the same, and there’s been a lot of debate about whether there should be this emphasis on the debt and the deficit at a time when we’re still, as you just pointed out, in such a precarious position economically. Why not make sure you get the economy back on the right heading and then seriously tackle the fiscal matters?

GOV. PAWLENTY: Because they won’t first of all, and second of all it’s dramatically more difficult the longer you wait. Here are the facts: the Federal Government takes in about 2.2 trillion dollars a year in revenue, they just raised the debt ceiling to 14 trillion dollars. So you have 2.2 in revenue and you have 14 trillion, now that’s seven to one leverage in debt. But that doesn’t even count everything, David, if you look at the total, unfunded liability, long-term liability of the United States Federal Government, it’s at least 70 trillion dollars on 2.2 trillion dollars of revenue. There is no way you can make those numbers work. I had an eighth-grader at my breakfast table, my daughter, she’s thirteen years old watching a news report on Greece the other day, nobody said anything, no prompting at the breakfast table, a thirteen year old looked up and said “That’s going to be America soon.”

This is no longer being Republican or Democrat, liberal or conservative, this is a matter of junior high math. You have a spending line that is entitlement spending that looks like that (SLANTS HAND UPWARDS) you have a revenue line, even if you assume modest economic recovery, that looks like that (SLANTS OTHER HAND DOWNWARDS), the two never catch up, in fact they worsen over time, and the demographic turnover of the country, the financial situation I’m describing, is mathematically almost impossible to solve, even now, it’ll be certainly much more difficult down the road. So, I don’t believe they’re going to tackle it down the road, and number two, don’t assume the United States Federal Government can’t default. I will suggest to you they’re not going to default in a technical sense as you’re thinking about it, they will not keep all the commitments they’ve made. And in that sense, they will not live up to their promises, and I will guarantee you that as sure as you’re sitting in Minneapolis or University Campus this afternoon.

MR. GREGORY: Well, so tell it like it is, tell me an example of a painful choice that you would make, right here and now, to bring the fiscal house in better order from the federal government.

GOV. PAWLENTY: Well one thing I would do is put the clamps down on the ability for the Treasury to print money on an unlimited basis. You have people here plotting for that and think about that, do you really want a Treasury that is essentially insulated from political accountability, from transparency, printing money on an unlimited basis? As we sit here today, there is an announcement that the International Monetary Fund is now participating in the bailout of Greece and the European bailout more broadly, and the United States’ role in that is a significant amount of money, and the position that the United States has taken, and that is subordinate to European banks, so we now have the United States Federal Government, everybody in this room our taxpayers, paying for not just the bailout of AIG, not just the bailout of General Motors, not just the bailout of Fannie and Freddie with are pathetic and should be privatized, not just the bailout of Goldman Sachs, not just the bailout of all these other, you know, Wall Street institutions, you now have the United States taxpayers bailing out, directly or indirectly, Greece, but even more to the point, on a subordinated basis, to European banks. That’s what your money…

MR. GREGORY: So if the Fed didn’t have that ability, what would’ve happened during our financial collapse?

GOV. PAWLENTY: Well, we will never know that for sure, and it depends on…

MR. GREGORY: But did you oppose TARP?

GOV. PAWLENTY: How much worse would the world be without AIG? I mean, really. I’d make an argument it might be better.

MR. GREGORY: So you would have let AIG default?

GOV. PAWLENTY: I think so.

MR. GREGORY: Really? And do you know anybody who thinks that was the right way to go, in terms of staving off the systemic risks that would have created?

GOV. PAWLENTY: Yeah, I mean I think there are people who’d agree with me on that.

MR. GREGORY: Really? Who in the financial industry, who in the government who, who were actually, you know, a Hank Paulson in a bi-partisan basis thought it was a good idea not to do the bailout?

GOV. PAWLENTY: Well, Hank Paulson, you mean the former CEO of Goldman Sachs?

GOV. PAWLENTY: Who met with the current CEO of Goldman Sachs and said what should we do, and they came up with the solution of bailing out Goldman Sachs?

MR. GREGORY: I just want to be clear, you oppose TARP. You oppose the 700 billion dollar bailout, you don’t that that worked?

GOV. PAWLENTY: Well (LONG PAUSE) maybe some things could have been done, but let me show you a few things I’m concerned about. I know this was put together quickly, hindsight’s 20/20, Monday morning quarterback is easy, and they were facing potential calamity, but a couple of things. One is, before you bail these people out, shouldn’t you have asked the shareholders, the principals, the partners to give up their equity or at least take a haircut? I mean why do you bailout Goldman Sachs and allow all the principals to walk out the door with their equity in tact? I mean, really? I don’t think so. And then why wouldn’t you have some standards about who’s going to get the money and who isn’t? And they make it up on the back of an envelope, they got people using one set of standards apparently for Bear Stearns and Lehman than they do for CitiBank and some others, so again, at a minimum, shouldn’t the people who were the arsonists at the fire have had their stock and equity positions crammed down? I think so. So, I thought it was poorly done, obviously quickly done, and I didn’t like it.

MR. GREGORY: So but you, but you don’t think, you don’t think it worked?

GOV. PAWLENTY: Well if you define worked as…

MR. GREGORY: …Saving the financial system

GOV. PAWLENTY: Well, the argument is it would have all been gone and we would have had a Depression-era calamity on our hands. Maybe, but there are thoughtful people who say maybe not.

MR. GREGORY: I just want to go back, though, because my original question is name a painful choice you would make to cut the deficit, to cut government spending, would you cut defense spending? Would you cut social security benefits? Would you raise the retirement age for social security? I mean a painful choice that matters, can you come up with something?

GOV. PAWLENTY: David, you’re talking to somebody who, with the exception of military veteran’s public safety and K-12 schools has cut everything. I mean, I’ve cut everything. So, you want to lay on the publicly-subsidized health care programs? I’ve cut ‘em. You want to say higher ed? I’ve cut ‘em. You wanna say, you know, housing? I’ve cut ‘em. One thing I would do right of the bat is I would privatize and get rid of Fannie Mae and Freddie. I mean they are a nightmarish disaster, and I’d shut them down.

MR. GREGORY: But is that really the best example of a painful choice because at the moment, the reason the government has assumed all of that debt…

MR. GREGORY: Hold on, without Fannie and Freddie right now you couldn’t prop up the housing market, which is still suffering. So the government assumed all of that liability for the purpose of, of somebody taking a long position on these mortgages. So give me a more concrete thing you would do to cut these big programs that are leading the class.

GOV. PAWLENTY: I’d be delighted. But let me just first challenge the premise of your question which is these institution are propping things up. That’s right, they are propping them up artificially, on a basis that is not justified by market conditions, and that is the problem with the federal government’s current mentality which is they think, mistakenly, it’s their role to enter in to the situations and prop everything up. And as everybody in this room, including me and you, is going to painfully see, in the next fifteen or twenty years it is a house of cards, it cannot be sustained, it is reckless, it is mathematically impossible to sustain the path that they’re on, and we’re going to have the federal government equivalent of the sub-prime mortgage meltdown within twenty years.

MR. GREGORY: Okay, painful choice.

GOV. PAWLENTY: That being said, here’s some painful choices. The Medicaid program is one of the things that is driving the federal budget, driving the state budgets at a rate that is alarming and unsustainable; we’re going to have to cap it at current levels of spending or cap it at current levels of spending plus some reasonable growth factor, block grant aid out to the states give them some broad parameters about the goals that need to be met, ie providing health care to the poor, and then get out of the way and let them do the job in a Republic. Now that would be one example, another example was in the Medicare program, you have states like Minnesota who historically have very high quality, lower cost healthcare, but our Medicare reimbursements to Minnesota are dramatically lower than places around the country who have historically higher cost and poorer quality. So begin to change the Medicare program so reimbursements are based on quality rather than historical cost factors, it distorts the whole distribution formula.

MR. GREGORY: You know, we’ve got an economy right now, or a federal debt, that’s 53% of our total economic output, but you know the tension in Washington, and the reason people aren’t so high on Washington these days…

GOV. PAWLENTY: They’re not…

MR. GREGORY: …is that Democrats, Democrats don’t want to cut anything and Republicans don’t want to raise any taxes. Would a President Pawlenty be any different? Would you consider a tax hike if it would improve our fiscal situation?

GOV. PAWLENTY: Well, the people of Minnesota know the answer to that. No. I mean the problem with the United States of America…

MR. GREGORY: Under any circumstances? A blanket no?

GOV. PAWLENTY: We are not under taxed as a nation, and again this does not need to be a matter of political rhetoric whether its Minnesota compared to the 50 states or the United States compared to the world, put up on the numbers, on the dashboard. What are our income tax rates? What are our corporate tax rates? What are capital gains tax rates? How do we tax payroll? How do we tax dividends? And down the list.

How do we tax personal income? And tell us what it looks like, and what percent of the population is exempt for taxation by the way? According to the AP, 47% of Americans pay no federal tax. But the answer to that analysis I just described leads you to a conclusion, which is that, in a hyper-competitive world, we are taxed too high, not too low, in the United States

MR. GREGORY: I want to take questions in just a, I have a couple more questions for the Governor, and then we want to get to some of your questions as well, and we have a process for doing that in terms of lining up. Let me ask you about immigration. Do you support what Arizona has done?

GOV. PAWLENTY: Uh, yes. I mean, you should read the law, not you personally, but…

MR. GREGORY: Well I have. Just for the record, I have.

GOV. PAWLENTY: So have I. So have I. But here’s the media’s take on the law. You will be able to stop somebody on the mere suspicion that they may be an illegal immigrant. That is not what the law says. That is, it is, maybe 15 pages long. It is not a complicated piece of law. What it says amongst other things is this. If you have somebody stopped or another lawful reason and another probable violation of law, and you have a reasonable suspicion, after you have already stopped them for another legitimate reason, and then you have a reasonable suspicion that they may be here illegally, if practicable, you can inquire and should inquire about their immigration status and a presumption of legality is if they have any legal identification on them.

So this notion that has been spun in the press that its going to just allow the police or law enforcement to pull anybody over on a mere suspicion of illegality is not what the law says. It is a mischaracterization of it, and the country is having a great disservice visited upon it by people who what to purposely distort what that law actually says.

MR. GREGORY: At least if you’re going to, if you’re going to… You can blame the press for a lot of things. In this case, I for one interviewed the Attorney General of the United States who has that view. So its not press spit. Its officials in our government who believe its an invitation to racial profiling Is racial profiling an appropriate, and indeed, necessary, law enforcement tactic in your view?

GOV. PAWLENTY: No. You know racial profiling as we have defined it in Minnesota, and debated it here, is something we want to avoid, and one of the things we’ve done in Minnesota is launch initiatives like try to get cameras into squad cars so we don’t have this dispute about well you only pulled me over because of identity politics as opposed to some violation of the law. Now it’s on tape. Watch the tape.

MR. GREGORY: What about in the fight against terrorism? Should we be tracking Americans that go to Pakistan or of Pakistani descent? Should we be profiling them?

GOV. PAWLENTY: No, it has to do with we know there is a concentration of terrorists in Pakistan who want to blow up the United States, and so people who come and go from Pakistan should be of great interest to us.

MR. GREGORY: Okay, but if you’re in Arizona, a border state, you know that Mexicans could potentially be there illegally, so what’s the difference? If you say that there is no racial profiling. If you can stop them for a speeding ticket chances are they are not going to ask a white person for their papers, but if they’re Hispanic, they say, “Hey, are you here illegally?”

GOV. PAWLENTY: So, here is what the law actually says David. First of all, they have to be pulled over for something else, and then you have to have another reasonable belief basis or suspicion in the law, that they are here illegally and it cannot be based on their race. So if you are the law enforcement officer…

MR. GREGORY: Well Governor, I mean, we can all read a law?

GOV. PAWLENTY: Let’s play it through.

MR. GREGORY: I know a lot of lawyers, but what do you think it’s going to be based on?

GOV. PAWLENTY: Well Let’s play it through.

MR. GREGORY: Okay.

GOV. PAWLENTY: You’re the police officer. You’re sitting on the witness stand, and I am the defense attorney. Officer Meet the Press, you pulled this person over because you though they ran a red light. “Yep I did.” And then you made an inquiry based on immigration, concern about being here illegally. What was it based on? By the way, the answer can’t be his or her ethnic race or background. That officer better be able to articulate a reason other than race that is credible, actual, and identifiable. What that may be, that is up for law enforcement to describe.

MR. GREGORY: It seems rather opaque. More generally, what do we do about immigration? Is it realistic, is it realistic, to secure our borders without coming up with some kind of plan to deal with those illegal citizens, of other countries, who are in this country illegally? In other words, can you enforce the border, secure the border, without comprehensive immigration reform, because certainly President Bush didn’t think that that was realistic?

GOV. PAWLENTY: Yeah, well we have some experience in that regard. Minnesota sent National Guard troops to the Arizona border a few years ago as part of Operation Jump Start. I approved that, and we know from that physical reinforcement as well as advances in technology, drones, virtual monitoring of the border, if you are serious about it and you’re willing to put resources against it, verifiable, beyond debate, that immigration dropped. Illegal immigration dropped. So that worked, and enforcement can and has worked, but I would do this for immigration.

First of all, let’s recognize that unless you’re Native American, everyone in this room is an immigrant or a relative or a descendant of an immigrant. We should be a country that celebrates and accepts immigration, but it needs to be legal. It needs to be reasonable, and it needs to be orderly. The current system is none of that, and here are the changes I suggest we make. Number one, be serious about enforcing the border. Put the resources and time and talent into it.

Number two, you want to really try and dry up illegal immigration, let’s face reality most of the illegal immigrants come here for one thing. They want a job, and so you tell our employers if you knowingly, and underline the word knowingly, hire an illegal immigrant, then you’re going to jail or you’re going to have a serious consequence. It will take care of most the problem in a big hurry.

MR. GREGORY: It is interesting though Governor. Here you are a conservative, a small government conservative, and part of your prescription is government should spend more money, right?

GOV. PAWLENTY: What do you mean?

MR. GREGORY: Well, you want to secure the border; you’ve got to spend more money. Right, in a time where we are running these huge deficits.

GOV. PAWLENTY: That’s right.

MR. GREGORY: You want more government, more government spending at a time when government’s out of control.

GOV. PAWLENTY: You have to be willing to prioritize. Its like I said before. In Minnesota we put the military and the National Guard at the top. No cuts. In fact, they have had their budgets increased in Minnesota. So what I am saying is not inconsistent with what we’ve, what we’ve done here. And then lastly on immigration, you know when it comes to things like H-1 Visas, when it comes to things like students visas, the, we benefit greatly from the magnetic effects of bringing really smart people here legally, exposing them to our country, exposing them to our educational systems and the entrepreneurial opportunities here.

If you saw the numbers on, the number of graduate students in our universities in technical fields who are foreign born, the number of entrepreneurs in Silicon Valley who, you know, have immigration as a first or second generation characteristic. It’s overwhelming, so we benefit from smart policies around immigration, and we should welcome immigration but it needs to be legal, reasonable, orderly, and strategic, and what we’ve got now is a mess. I mean this is, Arizona is frustrated, so their reaction is not irrational. It’s not some crazy thing. It’s a reaction to the fact that they federal government if flat butt not doing their job.

MR. GREGORY: All right. I want to get to some questions here, and I want to start with Carol Evans political reporter John Croman, who is here. John, where are you? There he is. All set, ready to go. So, we will take some questions after John, lets just try to keep them, try and keep your questions tight, to the point, and the Governor will keep his answers the same way, and I will bud in as I might. Go ahead.

JOHN CROWMAN: Alex, I’ll take a Hot Seat Survival for eight hundred.

MR. GREGORY AND GOV. PAWLENTY: [Laugh]

JOHN CROMAN: The question I have, you see Governor Palin and some of the other big name Republicans put their good names on the line for local candidates in other states, lately some of whom have lost. Now that veto season is over in Minnesota this afternoon, will we see, to what extent will we see, Tim Pawlenty on the road backing candidates who may or may not win?

GOV. PAWLENTY: Thanks John. You know I have a PAC. Its called the Freedom First PAC. So, we’re using that as the vehicle to endorse candidates, support candidates financially, doing events with them and for them and we hope that helps for the 2010 election, but generally I have not gotten involved in those kinds of endorsements until after the primary, or endorsement of the party structure or electoral process of the state, because my attitude of it is, even though I’ve got a lot of friends running in these various states, if there’s an open, transparent, fair process in states across the country to pick candidates, its not my job to go in and tell the people of California or Florida who their candidate should be. And once they pick him, him or her, then I am more than happy to help then and support.

MR. GREGORY: Thanks John. Next up.

FEMALE AUDIENCE MEMBER: I have a health care question. In America, if you are sick or in an accident, any hospital has to accept you into their emergency room. Should we then have an individual mandate, or if you aren’t putting into the pull beforehand, should we not accept anyone into our emergency room? Which way should it be?

GOV. PAWLENTY: Yeah, well you’re right. I think if hospitals are required to accept anyone into their emergency rooms. If they take federal funding, and they all do, may even be beyond that, one thing we should think about is if somebody presents to an emergency room and they’re not in a life threatening or serious situation, you know, is collocation of some primary care clinics or operations that are more efficient and affordable a better way to go?

I mean, one of the things you hear from emergency rooms is many people who come in have an ear infection or strep throat or a fever or flu, I mean these are things to be concerned about but they’re often times not what you want to use an emergency room for. The availability of lower cost care would make some sense. On the issue of individual mandates, I don’t like the idea of the federal government telling you and me we must purchase a good or a service. I just, I don’t like it.

I think that is a creeping for of this government overreach, and I wish they wouldn’t do it. In fact, there is a lawsuit pending in Florida, northern district of Florida, and Virginia challenging whether they can legally do that, but I don’t like it. If we need to encourage people to get healthcare and support them in that regard there is lots different ways to do that, but to have the United States federal government reach out and tell you, you are going to buy a good or a service and if you don’t, we’re going to fine you, that’s too much overreach for my comfort level.

FEMALE AUIDENCE MEMBER: So there should be some freeloading? I mean people that don’t pay in…

MR. GREGORY: Ma’am, I’m going to try and keep it moving, but I’m not going to do follow-ups. I’m going to use my prerogative there. Go ahead. Thank you.

MALE AUDIENCE MEMBER: Thanks a lot for being here Governor Pawlenty. It’s a great feather in that cap of the university to have you here. I have a question about your working protecting marriage as an institution. I’m lucky enough to be engaged. I’m getting married next summer, and I’m really excited, but if god forbid something bad were to happen to my future husband, under your veto of SF 341, I wouldn’t have the rights that a heterosexual couple would have, which for those of you who are unfamiliar, simply inserted the term “or domestic partner” in a list of rights that heterosexual couples have if their partner falls ill. So, if you could explain why you vetoed SF 341 to me that would be great.

GOV. PAWLENTY: Is that the one from a week or so ago or from last year?

MALE AUDIENCE MEMBER: A week or so ago.

GOV. PAWLENTY: A week or so ago. Well first of all, on the issue of traditional marriage versus same sex marriage in my view, and I know there is a great debate about this, I don’t think all domestic relationships are the equivalent of traditional marriage, so I am willing to say that we should keep traditional marriage elevated on a platform legally and culturally that’s different. I’m not willing to say that all domestic relationship are the equivalent of traditional marriage.

In my opinion, they’re not. So I am willing to make that statement as a values statement. Number two, in the bill last week which related to how you can process the remains of a deceased person, you can do that under current law simply by designating whoever you want through a will or a healthcare directive or I think other instrument, and so there’s a group in Minnesota that is trying to get the words “domestic partner” into various parts of the law, and my argument is you don’t need to say domestic partner if there’s concerns about healthcare agents like last year when I signed the bill for that or medical assistance leans between co-owners of a home.

You can allow these things to happen without regard to status. We don’t need to do identity politics. You don’t need to say to have a medical lean put at advance for a co-owner that lived there 180 days before the other person died, the person has to be a domestic partner. You could say whoever lived there for an adult for 180 days. So, to be blunt about it, there’s some politics here, because there’s a great movement to try to get those words into law, and get it recognized into law when there is a compromise to be had by handling it by saying we don’t need to do identity politics.

Let’s let anybody be a healthcare agent. Let’s let anybody who lives in the house for 180 days before the person dies have the medical lean but at advance and the like.

MR. GREGORY: Governor, before the next question, what about Don’t Ask, Don’t Tell, because it appears this administration is going to do away against this prohibition against gays in the military? On Meet the Press earlier this year, you said you’d like to keep Don’t Ask, Don’t Tell. Are you changing your view at all about that?

GOV. PAWLENTY: No, but I do think its reasonable also David to allow the military establishment to complete its review before anybody makes any final decisions on this. It seems now you have members of the administration or members of Congress wanting to accelerate the vote or the decision prior to the military’s review of this and I think you had the four leaders of the four branches of the service come out today or yesterday and say at least give us a chance to review the implications of this before you make a final decision. At a minimum I think that’s fair, and then beyond that I think the policy has worked reasonably well.

MR. GREGORY: But you would defer to the military’s judgment ultimately?

GOV. PAWLENTY: Well if you’re the President or the decision maker you can’t outsource your decision making, but you certainly want to hear their opinion.

MR. GREGORY: Okay. Sir.

MALE AUDIENCE MEMBER: I have a question regarding temperament and judgment. I don’t know if you are going to run for President or not, but obviously if you do make that decision that’s important, and in observing you for eight years as governor in Minnesota, I found that you have consistently have distained when people disagree with you, and invariably treat them in a disrespectful kind of way. You tend to carry yourself as though you’re the only adult in the room and so my…

MR. GREGORY: Sir, why don’t we get to the question.

MALE AUDIENCE MEMBER: So here’s my question. Would the only adult in the room pass along 3 billion dollars to the next governor and the next legislature by virtue of not paying bills on time because I’ve heard you lecture about government needs to be like homeowners and responsible citizens and you, so you wouldn’t have to raise taxes, made a pact with the devil to pass along that 3 billion dollars in late payments?

MR. GREGORY: All right sir, go ahead Governor why don’t you respond.

GOV. PAWLENTY: Well I wouldn’t refer to Senator Pogemiller and Speaker Kelliher as the devil.

GOV. PAWLENTY: That’s very disrespectful. But more seriously, the current deficit in Minnesota has been resolved, so we have constitutional requirement every two years to balance the budget. Its been balanced every two years I’ve been Governor. Now you’re referring to the projected deficit beyond this two years.

That deficit would have been cut in half if the legislature would have passed the proposal that I made to them in February, and we made that same proposal to them two weeks ago. They declined. The, if you make the cuts and the allotments permanent, including the school payments or cuts, that thing gets cuts by more than half. So, this is not a situation that I did it. This is the decision of the legislature and before I leave office, we will propose that again because in November we will prepare another budget for the next governor, the next legislature to consider and if they would have done what we recommended, you wouldn’t have that situation.

I want those cuts permanent. It’s a matter of public record. I’ve said that publicly many times. They declined to do it, because they want the deficit to be big, because if they win the governorship they want to come back and say we have no choice but to raise taxes, and it’s a complete crock.

MR. GREGORY: Alright, next question.

MALE AUDIENCE MEMBER: That leads to more compromise.

MR. GREGORY: Sir, thank you. Next question.

MALE AUDIENCE MEMBER: Hello Governor. That’s a tough act to follow, but I am Stanley the Skeptic and given the case that you laid out. Why would anyone in his right mind in the world want to have the thankless job of becoming President?

GOV. PAWLENTY: Well I think the country is in trouble in a lot of different ways, but again just said aside the political rhetoric. Don’t even pay attention to the politicians. Just take the time to look at the numbers and you can reach these conclusions, I think, pretty readily, on your own, and it leads you to certain conclusions. So, I do think though if good people, but if good people through their hands up in the air and walk away and say its not worth it or its not worth the trouble or you get kicked around too much or people say mean things about you, then we vacate the playing field to people I think perhaps don’t have the full perspective that you would want to have in these types of offices.

So, I think the United States of America is a glorious nation. It is not just a piece of geography. It is a set of ideas and values that have served us well. We have drifted away from those. We have drifted away from common sense. I’m willing to put time and energy into trying to make it better. Whether, it ends up running for President or not I don’t know.

MR. GREGORY: Can I interject something here Governor? What is your assessment of President Obama as a leader?

GOV. PAWLENTY: I think President Obama is a very gifted orator. I think President Obama is someone who loves his family, his wife and his children. I think President Obama is a smart person in terms of how he thinks and his ability to think sequentially, but I think his philosophy and leadership style is problematic to say the least. I mean he has a, he campaigned for President as somebody who was going to be uniting the county. He stood for example in Iowa on the night of the Iowa caucuses and promised, promised, promised that he was going to do healthcare reform with Republicans and Democrats on a bipartisan basis, and he broke the promise, and he led the country to believe he was going to be more of a practical leader, and he has turned out I think to be more of a traditional liberal orthodox politician and its heading the country in a very dangerous direction in my view.

MALE AUDIENCE MEMBER: Yes, my name is Scott Anderson, and I come from Carver County. It’s a part of the state that over the last few years of your administration our neighbors have really complained that the property tax rate has dramatically increased. I just wanted to ask you how you reconcile your policy of “no new taxes” with the real reality on the ground with the people that our property taxes are often increasing.

GOV. PAWLENTY: What city do you live in?

MALE AUDIENCE MEMBER: I live in Chanhassen.

GOV. PAWLENTY: Chanhassen. So, the argument is usually because we cut local government aid, your property taxes went up.

MALE AUDIENCE MEMBER: Potentially, yes.

GOV. PAWLENTY: Yeah, so you might want to check. I don’t think Chanhassen gets any local government aid.

MALE AUDIENCE MEMBER: Yeah, but no Chanhassen and throughout Carver county has received some government aid.

GOV. PAWLENTY: You might want to double-check that. If you do, it’s not much. So the notion that the property taxes go up or down in Chanhassen because of local government aid cuts is probably overstated. But, here is the reality of it. The state of Minnesota is not for very much longer going to be able to pay thirty, forty, fifty, sixty, seventy percent of city budgets all across the state. There is the program that was designed to help cities that were too poor or too small to reasonably pay for local services locally, so the state has a program to send money to them to kind of level the playing field, and its mushroomed in to a big program that we now pay in many cases half or more of the city’s budget from the state level, and guess what?

In a world where we have dramatically more important needs, that program is probably going to be capped or reduced further. That doesn’t mean the only choice for local leaders is to raise property taxes. I mean they are going to have to do some things to contain and reduce costs as well. I won’t give you my whole lecture, but one example would be, you know, when no one else is getting a raise, when people in the private sector aren’t getting their healthcare benefits increased, do we really need to be having public employee settlements that get COLAs, cost of living, step and lane, health insurance benefits, pension benefits that go up forever and ever without regard to what they economy’s doing. So there are some tough reforms that are going to have to come at the local level as well, and what they normally say is we have no choice but to raise taxes if we get any loss in revenue, and that’s not, I think they need to have a more expansive view of their choices

MR. GREGORY: I’m going to apologize in advance; we’re not going to get to everybody in this line. I’m going to take a couple more questions before our time is run out. Go ahead, sir.

MALE AUDIENCE MEMBER: Governor Pawlenty, recently a former Republican governor of Minnesota, Arne Carlson, said that you were leaving the state of Minnesota in the biggest mess of any governor in the history of the state. What do you say to those people who say that you have sacrificed Minnesota’s financial health and future to your presidential ambitions?

GOV. PAWLENTY: I say this, first of all when you say former Republican governor Arne Carlson, keep in mind he’s a former governor, but he’s no longer a Republican, so he left the Republican party many years ago, supported John Kerry, supported Barack Obama, wants to raise taxes, embraces most of the DFL agenda, so don’t look at Arne Carlson as the benchmark for Republican thinking, he’s not.

MALE AUDIENCE MEMBER: Not anymore, that’s for sure.

GOV. PAWLENTY: So that’s number one. Number two is if you look at measures of performance for Minnesota right now, in most categories, that matter, we’re at the top or near the top of every category in the country. So, we have the highest ACT scores in the country, some of the highest high school graduation…

MALE AUDIENCE MEMBER: I’m talking finances.

GOV. PAWLENTY: Let me finish. On education measurements, for the most part, on health care measurements, on natural resources, outdoors, culture, arts, amenity, Minnesota, if it’s not in the top five, it’s close to it in just about everything that matters with some exceptions. So the notion that Minnesota has somehow regressed during the last eight years in these measurements is not true. As to the finances of Minnesota, the thing that he’s focused on and others are focused on is what the gentleman mentioned earlier, you’re going to have a deficit not in this two years but the next one. I can fix that real easy, proposed to fix it real easy, the legislature declined to do that. We’ll propose it again before I leave office, in November, and if a Republican gets elected in November, Tom Emmer, he’ll adopt that and more. If a Democrat gets elected your taxes will probably go up, so that’s the choice for the people of Minnesota. But it is not hard to fix, they didn’t accept my recommendations to take that deficit lower because in my view they want that deficit to be big because they want to come in and say we have no choice but to raise taxes.

MR. GREGORY: I’m gonna take one more question here from the audience. Thank you.

MALE AUDIENCE MEMBER: The public in Minnesota has voiced frustration that, the, during this last legislative session that Democrats and Republicans just weren’t able to work together as you alluded to, and as a result the budget was deferred to the next biennium. As someone who’s name is being considered as a, a potential candidate for President of the United States, if the cooperation of Democrats and Republicans couldn’t be facilitated on the state level, how would you facilitate that cooperation on a national level?

GOV. PAWLENTY: Yeah, well, they’re some things we can work on and some things that are just more difficult. So, you know, when we look at education reform I would hope that’s bipartisan, there’s lots of energy issues, other things there’s not huge disagreements on, but when it comes to an issue of core value, like whether the size and scope of government, whether we should or shouldn’t raise taxes, there’s just a fundamental disagreement, and that’s going to have to be decided by the electorate in Minnesota and elsewhere. Again, I profoundly believe Minnesota is over-taxed not under-taxed and I believe the data. You cannot be a fair-minded person and look at the data and conclude that compared to the other fifty states this is an under-taxed state I mean it’s a preposterous conclusion on the data. And again, as to make, working together with the Democrats in Minnesota, we’ve done many things together. I have to tell you that we fought hard; this is a liberal place, I’m a conservative, my direction for the state has been a big change for Minnesota, I think it’s gonna mark the era of when Minnesota pivoted from kind of a very traditional, liberal place to something that’s a little more balanced, and depending on the outcome of this election in November, you know, that may continue.

MR. GREGORY: Final question for you Governor, from me, do you embark on this path of considering the presidency, you know it’s obviously a huge step, what would you like to see change about politics in this country?

GOV. PAWLENTY: Hm. Well without regard to consideration of the presidential race, David, I would just say the discussion, discourse gets so caught up on who’s to—it’s all villains and victims. You know, if you watch the press coverage, somebody’s a villain, somebody’s a victim and often times there are villains and victims, but the debate has to be more thoughtful than just that. And, I worry sometimes about what room is left in the political discourse for a discussion that’s a little more in depth, a little more thoughtful, that’s a little more fact-based. I mean the instant reaction of everybody is how can you tag the other side, rather than what really are the facts? What really are the facts? And democracy depends on an informed citizenry, if we don’t have institutions and forums that give people good information they can’t make good decisions and I see a corrosion in the discourse to a level where, I think, at times we’re mis—people are misinformed. And not through the fault of their own but they don’t have access to fact-based information.